Despite the fact that economies around the world are increasingly digitalised, sending money across a border remains expensive. High street banks remain the dominant way of handling money in the UK, yet many still charge a fixed fee for transfers (i.e. £20), along with a relatively poor exchange rate. Wire fees can be as high as £30 in the UK, $50 in the US, and €100 in Europe.
Although it’s not consistent, and therefore difficult to research before signing up at a bank, many exchange your money at 2.5% under its true value (known as a markup). Putting these costs together and you may be paying over £100 on a £2000 transfer. So, how do we find an option that is cheaper than UK banks (charging £15 + 2.5%)?
Understandably, people are after cheap payments because relying on banks can be a surefire way to render a business unprofitable or to miss out on some return of an investment.
Cheap transfers are usually the description for anything that is less than a high street bank’s price. Generally, it is money transfer companies that come up time and time again for being the lowest cost option.
Money transfer companies have much lower overheads than high street banks and therefore compete fiercely on providing low-cost services – plus, they don’t rely on SWIFT. It’s very common to see either a commission or a markup to make things simpler. Given that most commission price structures are percentage-based (fixed commission prices, like banks often use, are seen as too expensive for smaller transfers) it means that we can view commission and markup as interchangeable – or aggregated together.
There are some platforms that charge sub 0.5% for commission + markup together in some situations, like a major currency pair during a weekday transaction. Many hover around the 1% mark and below, making this a nice and simple figure to consider as being cheap.
Given that a bank may charge £20 on a £200 transfer, plus a 2.5% markup, the total expense could be £25; or 12.5% of the total transfer amount as a loose example. When looking at an affordable money transfer company though, like Wise, the quote offered is a fee of £1.02, which is 0.5% of the transfer. Bank international money transfer fees aren’t quite this outrageous with a larger transfer, but they’re never going to compete with a competent money transfer company.
Why we need to look beyond just cheap FX
Anybody who has studied basic business studies will tell you that cheap isn’t actually a real thing in isolation, it needs to be compared to the quality of the goods or service. When putting the two together, we get value, and this is something that often goes overlooked with FX. Because currency is fungible, it’s easy to group all FX providers together and simply search for the cheapest option.
In truth, services facilitating a transfer of money from the UK to overseas have many different factors of quality.
Some things to consider and compare between providers are:
- Speed of the transfer
- Security of data, account, and funds
- User experience
- Over-the-phone services and advice
- Functionality of the app or website
- Additional services such as hedging
- Customer service
If we found a provider that offered the highest quality on each of the above, it would likely result in a fairly “expensive” international money transfer. Therefore, when looking for the cheapest way to transfer money from the UK, it’s usually a good idea to find the provider that only serves your needs and nothing more.
So, a dedicated manager with expertise in business FX that can send funds within an hour may be overkill for a casual transfer of €100 from Spain to the UK. Likewise, choosing an app-focused low-cost provider isn’t going to be optimal for a complicated overseas house purchase in Spain or when paying regular overseas supplier payments.
Where crypto fits into all of this
You may be thinking that crypto fits the bill for being the cheapest international money transfer option, but it’s not yet this simple. First and foremost, as mentioned above the importance of value and service, crypto offers almost none. Some exchanges may have some limited functionality, but there will be no customer service, dedicated dealers, and security is still a concern.
Furthermore, whilst transfers can be free, some exchanges charge a transaction fee – like Coinbases’ 1%, and an even higher one for card transactions and deposits. Furthermore, the time in which you’re holding the crypto itself is a currency risk with volatility being extremely high compared to fiat currency. For example, on the 6th of November, sending 1 bitcoin would cost around $20,591. Two days later, it would have cost $15,757. Therefore, the recipient of a $20,000 transfer using crypto could be $5000 worse off by the time they withdraw to fiat. Holding the Bitcoin isn’t an option either, as we are then transitioning from a transactional endeavour to a speculative and investing one.
When looking for the cheapest way to send money from UK overseas, it’s important to consider what type of transfer and service we actually need. It’s useful to imagine that we are not a part of a high street bank already for this exercise. In such a case, to send £500 to Spain when renting a villa for a week, is it absolutely necessary to go to Lloyds or HSBC, who have thousands of branches, employees, mortgage products, and so on. Evidently, it’s being reflected in the price, and the idea of a one-stop shop is becoming less relevant given how quickly sign-ups are at fintech firms.
Instead, such a transfer can be completed by a streamline money transfer company whose sole service is to perform such transfers. Again, a heavy-duty FX broker wouldn’t be necessary either. But, for a complex transfer, a more sophisticated money transfer company may be required.
Therefore, the cheapest international money transfer option will depend on what type of transfer it is, but the chances are it will be a fintech and/or FX specialist providing it